Expatriation: taxation, wealth and tax residence
Expatriating is not merely a change of address: it is a change of tax residence with far-reaching consequences for taxation, wealth and social protection. Anticipated and structured, expatriation becomes a controlled project; improvised, it exposes one to serious tax risks. Harlington assists French nationals with their international mobility, on departure as on return.
What is expatriation from a tax standpoint?
Expatriation, in tax terms, corresponds to the transfer of one’s tax residence outside France. That transfer entails a change in the applicable tax rules: one ceases, in principle, to be taxed in France on all of one’s worldwide income and is taxed only on French-source income, subject to international tax treaties.
Tax residence is not a matter of declaration: it is established by objective criteria (home, principal place of stay, professional activity, centre of economic interests). A poorly documented departure may be recharacterised by the tax authorities, with taxation being maintained in France.
What are the tax consequences of moving abroad?
The change of tax residence has multiple effects: taxation of income, treatment of French real estate wealth, the possible application of the exit tax on unrealised capital gains, and a change in the rules applicable to inheritance and gift duties.
The exit tax on unrealised capital gains
Taxpayers holding substantial shareholdings may be subject, on their departure, to taxation of unrealised capital gains (exit tax). Deferral mechanisms exist, but they entail precise reporting obligations which must be anticipated.
The treatment of real estate and financial assets
French-source property income remains taxable in France. The holding of financial assets, life insurance and wealth structures must be reviewed in the light of the new country of residence and of the applicable tax treaty..
How is expatriation prepared in complete safety?
A successful expatriation is prepared in advance: an audit of the wealth position, analysis of the tax treaty with the host country, appropriate structuring of the holding of assets, and the assembly of a robust evidential file establishing that residence has effectively been transferred.
Our firm supports this process from end to end, in conjunction with our dedicated expertise: see our International mobility page, which sets out how we assist individuals and families on the move.
Is expatriation necessary in order to optimise one’s tax position?
Expatriation can be an optimisation lever, but it only makes sense if it corresponds to a genuine life plan and if it is properly structured. Many mechanisms make it possible to optimise one’s tax position lawfully while remaining a French resident: the fiducie (the French-law fiducie), the splitting of ownership between usufruct and bare ownership, and Luxembourg life assurance. Expatriation is one option among others, to be assessed objectively.
For further detail, see our analyses on wealth management for large private fortunes and our fiduciary mandates.
Frequently asked questions
From what point am I regarded as a non-resident for tax purposes?
You become a non-resident when you no longer meet the criteria of French tax residence (home, principal place of stay, activity, centre of economic interests) and the transfer is effective and documented. The precise date depends on your situation and on the applicable tax treaty.
Does the exit tax apply to all expatriates?
No. The exit tax mainly targets taxpayers holding substantial participations at the time of their departure. Thresholds and deferral mechanisms apply; an individual analysis is necessary.
Can I keep my French life assurance policy when I expatriate?
It is possible, but the tax treatment of surrenders and of transmission may change depending on the country of residence and the tax treaty. A review of the policy and, in some cases, a move towards a Luxembourg life assurance policy should be considered.
Do not neglect the personal and family dimension
Sometimes driven by the urge to leave everything behind, some candidates for expatriation too quickly overlook the fundamental question they should nonetheless ask themselves before any decision is taken: will I feel at ease where I wish to go? Far from trivial, this question is nevertheless the first condition of a successful expatriation.
Protecting wealth
Once the question of location and quality of life has been answered, serious time must be taken to reorganise one’s wealth entirely. The legal and tax tools you were accustomed to using in your country of departure most often do not exist in your country of arrival. Candidates for expatriation must expect this and prepare to rethink completely the way they hold their wealth, in order to adapt it to the new requirements not only of the country of arrival but also (and this is forgotten) to the obligations of the country of departure, which will most often do everything to contest your departure if it considers it insufficiently effective or documented.
In conclusion, the secret of a successful expatriation comes down to carefully planned preparation in advance.
Frequently asked questions on expatriation and tax residence
Does expatriation automatically change my tax residence?
No. Changing your country of residence is not enough: tax residence depends on precise criteria (home, principal place of stay, centre of economic interests) defined by article 4 B of the CGI and by tax treaties. A poorly prepared transfer may give rise to double taxation or to continued taxation in France.
What is the exit tax?
The exit tax is a charge on unrealised capital gains on securities upon the transfer of tax domicile outside France, for wealth exceeding certain thresholds. A deferral of payment is available, in particular on a move to a European Union State, subject to conditions.
How can double taxation be avoided as an expatriate?
The bilateral tax treaties signed by France determine which State taxes each type of income and provide for mechanisms to eliminate double taxation (tax credit or exemption). An analysis of the applicable treaty is essential before departure.
What becomes of my real estate in France after expatriation?
French-source property income and real estate capital gains remain taxable in France, even for a non-resident. Holding through a company may in addition trigger the 3 % tax on real estate if the reporting obligations are not complied with.
Should the succession be planned before expatriating?
Yes. Tax residence at the time of the death or of the gift determines the applicable rules (article 750 ter of the CGI) and may give rise to a heavy tax burden. Planning the transmission of the estate and checking the applicable succession treaty avoids the pitfalls for non-residents.
The House of Harlington since
2006